Final Results

Metro Baltic Horizons plc

Annual Report

31 December 2011

Overview

·; There has been a continued stabilisation of the Company's finances reflected in an improved year-end cash position at of €2.13m (31 Dec 2010; €0.47m).

·; The company holding the Krasta property filed for insolvency during the year and as a result was derecognised as a subsidiary.

·; The outlook for the Pirita Tee property investment remains very challenging as outlined last year. Indeed, in the period since year end, Unicredit have submitted their security claim over the property and the Estonian courts have submitted a written notice for the formal dissolution of the Company.

·; The St Petersburg property was reduced in value by €4.96m to €6.17m, which the Board believes to be prudent given the continued lack of development finance currently available.

·; Continued defensive litigation is being pursued in Estonia and Russia in response to the attempted enforcement of a mortgage over the St Petersburg property purportedly granted to a party related to the former Investment Manager as security for a loan facility granted to the Group.

·; The Company has engaged in extensive pre-action correspondence with its former board and professional advisers and preparations for the commencement of legal proceedings against those parties are well advanced.

·; The shares were suspended on 11 November 2010, but were restored to trading on AIM on 3 August 2011.

·; Net asset value per share (NAV) declined by 68% to €0.125 (31 December 2010: €0.39). The NAV is derived from the Group's cash holdings and the Russian property.

·; Group loss after tax of €7.523m (2010: loss of €0.582m).

·; Total gross property portfolio (including minority interests) valued at €8.9m (31 December 2010: €18.1m).

·; At year end, the Group had a total of €3.78m of asset-level bank debt all of which related to the Pirita Tee property.

·; The financial statement comparative amounts as at 31 December 2010 and 31 December 2009 have been restated as a result of an error in the calculation of the non-controlling interests' share of the loss of the Group's former Latvian subsidiary, SIA D Tilts Holdings, during the year ended 31 December 2008. While the net assets of the Group remain unaffected, the error has resulted in a misallocation of the accumulated losses of the Group between the shareholders of the parent and the Group's subsidiary non-controlling interest shareholders in the amount of €0.51m.

·; Focus for the near future is on maximising shareholder returns by extracting value from the St Petersburg site and through loss recovery from former advisers via litigation.

Chairman's Statement

Dear Shareholders

It has been another challenging year for the Company.

Our focus for the year has been managing the remaining assets of the Company and defending the Company's subsidiary from enforcement procedures pertaining to the St Petersburg property. In addition, the Company has engaged in extensive pre-action correspondence with its former board and professional advisors and preparations for the commencement of legal proceedings against those parties are well advanced.

The loss attributable to the shareholders in the parent for the year ended 31 December 2011 was €7.1m, primarily reflecting a €5m write-down in the value of the Saint Petersburg property and a €0.4m increase in administration costs due to legal and related fees. This has resulted in a reduction of the NAV per share, excluding deferred tax from €0.48 per share to €0.17 per share or from €0.39 to €0.125 including deferred tax.

Based on its continued investigations, the Board believes that the matters set out in the trading statement dated 3 August 2011, including related party transactions, conflicts of interest on the part of the Company's Investment Management Team and insufficient oversight on the part of the former Board caused significant damage to the Company. It is also clear that insufficient care and attention was given to cash-flow forecasting and that the Group traded beyond its financial resources. In addition, as financial pressures grew, decisions were taken by advisers that were in conflict with the interests of the Company and were unchecked by the Board, the clearest example being the creation of the BAP loan notes and the sale of the Company's interest in the Metro Plaza property. The Company was overleveraged from the time of completion of the four property purchases and the continued challenging financial markets and consequent lack of credit mean that, as matters stand, the Board faces many challenges in recovering value for shareholders.

As matters stand cash in hand remains strong at the Company level but the ongoing running costs and cost of necessary litigation place many potential future demands on these monies. Furthermore, if valid and enforceable, the outstanding balance on the loan note facility secured on the St Petersburg site exceeds the cash resources of the Company and, while the Company disputes the validity of that facility and hence the security, adverse litigation results in Russia and/or Estonia could result in the sale of the St Petersburg site or exhaustion of the cash resources of the Company. In the event of adverse litigation results, the Board may consider seeking to raise monies via share placing or rights issue. While this would not be the preferred route, the Board believes that all strategic alternatives would need to be considered.

The Company has two property assets, St Petersburg and Pirita Tee. The St Petersburg property has been reduced from €11.1m to €6.2m as a consequence of tight credit availability and the high return expectations from those that provide development finance. Our plans remain to seek a development partner and develop the site but outright sale of the property will also be considered depending on an acceptable offer. The Pirita Tee site has negligible excess value over the level of bank debt and the Bank providing finance has commenced security enforcement as the Directors believe it is no longer in the Company's interests to continue funding the associated bank loans. The debt on this asset is ring-fenced to the property. As stated last year we are not optimistic on any recovery of substantive value from the sale or indeed development of this property and any recovery of value will be highly contingent upon successful development by a funded third party, which is now unlikely in light of the action being taken by the financing bank. The Krasta site was placed into liquidation in 2011. Given the reduced number of properties requiring active management the Board has implemented an investment management strategy of local property managers in Tallinn and St Petersburg, reporting directly to the Board.

The Board believes there may be value recovered from necessary and appropriate litigation being taken against certain parties. Such litigation can be costly and there is no guarantee of success but, having regard to the issues described above and pursuant to legal advice, the Board believes that such litigation should be pursued. I believe that the steps taken by your Board are in the best interests of the Company and your Board is resolved to maximise the remaining value in the Company and to seek restitution for losses wherever possible and from those responsible.

The Board continues to work to maximise the liquidity and value of the Company and will continue to update shareholders on a regular basis. The Board is hopeful that it can achieve value for shareholders in excess of the current share price however no certainty can be given on this eventuality.

Ronan Reid

Chairman

Metro Baltic Horizons Plc

29 June 2012

Directors' Report

The Directors present their annual report and audited financial statements for the year ended 31 December 2011.

Principal activities

The principal activity of the Group is investing in and developing land and buildings in the Baltic States and in the St Petersburg area of Russia.

Business Review

A review of the business during the year is contained in the Chairman's Statement.

Results for the period

The loss attributable to the shareholders in the parent for the year ended 31 December 2011 was €7,090k (loss for the year ended 31 December 2010: €562k). The results for the year are set out in the Consolidated Statement of Comprehensive Income on pages 13 and 14. The loss for the year of €7,090k (2010: €562k) has been transferred to reserves. The loss attributable to the Group's non-controlling interest totalling €423k (2010: €20k) has been added to their share of losses forward.

Basis of Preparation

The Board have considered and reviewed the current financial status and the cash-flow projections of the Group. Having completed this review and given consideration to the other factors detailed in Note 2.2 to the financial statements, the Directors are of the opinion that there are adequate financial resources available to enable the Company and Group to continue in operational existence as a going concern for a period of at least 12 months from the date of approval of these financial statements.

Dividend

The Directors have not declared any dividends in the year ended 31 December 2011 (2010: Nil).

Directors

The Directors who served during the year were Robin James, Kristel Meos, Ronan Reid, Brendan Murphy and Tim Crowley. Tim Crowley was appointed to the Board on 15 April 2011. Robin James resigned from the board on 10 May 2011 and Kristel Meos was removed as a Director on 11 May 2011.

Auditors

Ernst & Young resigned as auditors on 16 April 2012. Grant Thornton, Chartered Accountants & Registered Auditors were appointed in their place and have indicated their willingness to continue in office.

The beneficial interests of the Directors and Secretary in the shares of the Group and Company are as noted below. All interests are in the ordinary share capital of the parent company, Metro Baltic Horizons plc:

Directors Remuneration

Remuneration to Directors during each of the financial years ending 31 December 2010 and 31 December 2011 consisted entirely of Directors fees and can be analysed as follows;

The Secretary who served during the year was Philip Scales.

The following entities had substantial holdings in the share capital of the Group at 31 December 2011;

Shares held Perc. of total

The Board and subcommittees

The Board considers all Directors, including the chairman, to be independent. All the Directors are non-executive. The Group and Company has an audit committee consisting of all the Board members. The audit committee is responsible for overseeing all financial transactions and activities of the Company.

The Directors are responsible for preparing this report and the financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The Directors are required to prepare financial statements for each financial period which present fairly the financial position of the Group and Company and the financial performance and cash flows of the Group for that period. In preparing those financial statements the Directors are required to:

·; Select suitable accounting policies and then apply them consistently;

·; Make judgements and estimates that are reasonable and prudent;

·; State whether all applicable accounting standards have been followed; and

·; Prepare the financial statements on the going concern basis unless it is inappropriate to assume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and enable them to ensure that the financial statements comply with the Companies Acts 1931 to 2004. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

By Order of the Board

P Scales

Secretary

29 June 2012

Independent Auditors' Report

To the members of Metro Baltic Horizons plc

We have audited the financial statements of Metro Baltic Horizons plc for the year ended 31 December 2011 which comprise the Consolidated Statement of Total Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows and the related notes 1 to 26. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards.

This report is made solely to the Company's members, as a body, pursuant to Section 15 of the Companies Act 1982. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body for our audit work, for this report or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 10, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

- give a true and fair view of the state of the Group's and Company's affairs as at 31 December 2011 and of the group's loss for the year then ended;

- have been properly prepared in accordance with International Financial Reporting Standards; and

- have been prepared in accordance with the requirements of the Companies Acts 1931 to 2004.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Acts 1931 to 2004 requires us to report to you if, in our opinion:

- adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

- the financial statements are not in agreement with the accounting records and returns; or

- certain disclosures of Directors' remuneration specified by law are not made; or

- we have not received all the information and explanations we require for our audit.

Grant Thornton

Chartered Accountants & Registered Auditors

24-26 City Quay

Dublin 2

Date: 29th June 2012

Consolidated Statement of Total Comprehensive Income

For the year ended 31 December 2011

The Directors have chosen not to include the Company Statement of Total Comprehensive Income as permitted by the Isle of Man Companies Acts.

Consolidated Statement of Financial Position

As at 31 December 2011

Consolidated Statement of Financial Position (cont'd)

As at 31 December 2011

The financial statements were approved by the Board and authorised for issue on 29 June 2012.

Tim Crowley Ronan Reid

Company Statement of Financial Position

As at 31 December 2011

The financial statements were approved by the Board and authorised for issue on 29 June 2012.

Tim Crowley Ronan Reid 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2011

Consolidated Statement of Changes in Equity (cont'd)

For the year ended 31 December 2011

Company Statement of Changes in Equity

For the year ended 31 December 2011

Issued Distributable Retained

Capital Reserves Earnings Total

€'000 €'000 €'000 €'000

At 1 January 2010 262 36,186 (23,520) 12,928

Total comprehensive

income - - (5,465) (5,465)

_______ ______ _______ _______

At 31 December 2010 262 36,186 (28,985) 7,463

====== ===== ====== ======

Issued Distributable Retained

Capital Reserves Earnings Total

€'000 €'000 €'000 €'000

At 1 January 2011 262 36,186 (28,985) 7,463

Total comprehensive

income - - (2,092) (2,092)

_______ ______ _______ _______

At 31 December 2011 262 36,186 (31,077) 5,371

====== ===== ====== ======

Consolidated Statement of Cash Flows

For the year ended 31 December 2011

Company Statement of Cash Flows

For the year ended 31 December 2011

Notes to the financial statements

For the year ended 31 December 2011

1. General Information

The Company was incorporated in the Isle of Man on 18 September 2006 as Metro Baltic Hermitage plc. On 13 November 2006 the Company passed a special resolution to change its name to Metro Baltic Horizons plc. The Company invests in and develops property in the Baltic States and in the St Petersburg area of Russia.

This report of the Company for the year ended 31 December 2011 comprises the Company and its subsidiaries (together referred to as the "Group").

The Company's registered address is IOMA House, Hope Street, Douglas, Isle of Man. The Company was admitted to trading on the AIM market of the London Stock Exchange and commenced operations on 11 December 2006. The shares were suspended on 11 November 2010 and relisted on 3 August 2011.

2. Principal Accounting Policies

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. Certain comparative amounts have been reclassified to conform to the current year's presentation.

2.1 Statement of Compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The IFRS applied are those effective for accounting periods beginning on or after 1 January 2011.

2.2 Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for investment properties, which have been measured at fair value. These financial statements have been prepared on a going concern basis as it is the view of the Directors that this is the most appropriate basis of preparation to adopt having considered the issues identified below.

·; The Group is now focused on the core property in St Petersburg and has the strongest cash balances for some time at the Company and the Group level.

·; A year ago the Group had interest in four separate properties:

- In October 2010 the Group sold 30.7% of its 80.7% holding in Focus Kinnisvara OU, the entity that owned the "Metro Plaza" property in Tallinn, Estonia. Following the sale of the 30.7% shareholding, the remaining 50% was immediately made available for sale. The sale of the remaining 50% was completed during the current financial year.

- At the previous year end, the Group has sought and received legal protection in respect of its then Latvian subsidiary, SIA D Tilts Holdings, which provided legal protection from its creditors until 2 October 2011. This entity owns the Krasta 99 property. At 31 December 2010 this property was valued at €3,081,000, and was funded by bank loans of €2,969,000 and loans from a non-controlling interest of €1,358,000. The entity had net liabilities of €6,532,000 as at 31 December 2010. All debt in relation to this entity is non-recourse and is "ring-fenced" within the entity. Following the expiry of the legal protection, the company filed for insolvency. Details of the accounting for same are included in note 9. As the loans are ring- fenced within this entity, and the Group no longer controls the entity, the Group has no further obligations with respect to the liabilities of this entity.

- The Group's Estonian subsidiary, OU Pirita Tee 26, owns the property known as the Pirita site, which is valued at €2,770,000 (2010: €3,860,000), and is funded by bank loans of €3,777,000 (2010: €3,780,000) and loans from non-controlling interest of €1,052,000 (2010: €961,000). All debt in relation to this subsidiary is non-recourse and is ring-fenced within the subsidiary. The bank loan fell due for repayment in May 2010 and was extended to November 2010. In December 2010, Atlas Invest, the minority investor in this property and an entity managed by MCM, the former Investment Adviser, called their loan notes. The Group via its local manager refuted the right of such junior loan note holders to call their loans due to the subordination agreement with the Bank. The Group ceased payments of the bank loan during 2012. The Board's appointed local representative has continued negotiations with the bank and has sought to identify a joint venture party. If no additional funding can be found from a joint venture party, or if no financing is found to be available, the Directors anticipate that the bank will take over the property and force a sale.

- The remaining property asset of the Group is the Bolshaya Pushkarskaya St Petersburg Property. This has been valued at €6.2m, the reduction in value reflecting the lack of credit available and the increased return required from development partners. This property is the subject matter of current litigation described below.

·; In the financial year ended 31 December 2009, MCM arranged a loan from BAP Holding OU, a special purpose vehicle established and part funded by the Investment Adviser to raise funds for the group (the "BAP Loan"). This facility matured on 15 October 2010. The balance outstanding at 31 December 2011 was €1,902,000 (2010: €1,652,000) and is collateralised by a mortgage over Bolshaya Pushkarskaya, St Petersburg, which is valued at €6,178,000 (2010: €11,133,000). The Company has refused to repay the BAP Loan and has challenged its validity in proceedings in Estonia. Legal proceedings have been commenced in Russia against the Company's subsidiary under the terms of the mortgage seeking an order for the sale of the St Petersburg property. The Directors have engaged legal counsel in Russia to defend those proceedings and believe the Group has grounds upon which to contest the validity of the amount claimed, the loan agreement and the mortgage purportedly granted as security over the St Petersburg property (Note 21).

·; If the Group is unsuccessful in its challenge to the BAP Loan and security granted; the default position is the sale of the property or the Group can seek to raise additional monies either on this property or from shareholders. On this basis, there are sufficient funds available to discharge this liability.

·; In view of the potential litigation against the Group's former professional advisers, the Directors have assumed that no payment will be made in respect of management fees and interest claimed of €714,000 (2010: €543,000).

·; The Directors, as advised by legal advisers, believe there is a strong case for litigation against the former advisers and directors to the Group and on this basis will expend the resources of the Group in pursuing such litigation.

·; The Directors have prepared cash flow projections to July 2013. The projections include the assumption that the BAP Loan will not be repaid within 12 months of the date of signing financial statements. If this is not the case, the Board could consider either recourse to shareholders or to borrow monies on the St Petersburg property as, post the discharge of the BAP Loan, such borrowings would have the sole security on the property. 

In conclusion, the Directors believe it is appropriate to adopt the going concern basis in preparation of the financial statements. Whilst recognising the inherent uncertainty of potential litigation and consequences therein, the Directors believe that the outcome of such potential litigation should be successful. The Directors believe that adequate funding will therefore be available to enable the group to continue operating and meet its liabilities as they fall due and that it is therefore appropriate to prepare the financial statements on a going concern basis.

2.3 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the subsidiaries controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Losses are attributed to the non-controlling interest even if that results in a deficit balance.

If the Group loses control over a subsidiary, it:

·; Derecognises the assets (including goodwill) and liabilities of the subsidiary at the carrying amounts at the date when control is lost;

·; Derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them);

·; Derecognises the cumulative translation differences, recorded in equity;

·; Recognises the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control;

·; Recognises any investment retained in the former subsidiary at its fair value at the date that control is lost; and

·; Recognises any resulting difference as a gain or loss in profit or loss attributable to parent.

Entities whose economic activities are controlled jointly by the Group and other ventures' independent of the Group (joint ventures) are accounted for using the proportionate consolidation method, whereby the Group's share of the assets, liabilities, income and expenses is included line by line in the consolidated financial statements.

Associates are those entities over which the Group is able to exert significant influence but which are neither subsidiaries nor joint ventures. Investments in associates are initially recognised at cost and subsequently accounted for using the equity method. Any goodwill or fair value adjustments attributable to the Group's share of associate are not recognised separately and is included in the amount recognised as investment in associates.

The carrying amount of investments in associates is increased or decreased to recognise the Group's share of profit or loss and other comprehensive income of the associate. These changes include subsequent depreciation, amortisation or impairment of the fair value adjustments of assets and liabilities.

Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment.

2.4 Changes in accounting policy and disclosures

The following are the new standards that were effective for the Group's financial year ending 31 December 2011. They had no impact on the results or financial position as set out in the Consolidated Financial Statements.

·; Amendments to IAS 27 - Separate Financial Statements (Amendment)

·; Amendments to IAS 32 - Financial instruments (presentation and classification of rights issues)

·; IFRIC 19 - Extinguishing financial liabilities with equity instruments

·; Amendments to IAS 24 - Related Party Disclosures

·; Amendments to IFRS 1 - First time adoption of IFRS

·; Amendments to IFRS 3 (Revised) - Business Combinations

·; Amendments to IFRS 7 - Financial Instruments (Disclosures)

·; Improvements to IFRSs (2010)

·; Amendments to IFRIC 13 - Customer Loyalty Programmes

·; Amendments to IFRIC 14 - Prepayments of a minimum funding requirement

The IASB and IFRIC have issued additional standards and interpretations which are effective for periods starting after January 1, 2011. The following standards and interpretations have yet to be adopted by the Group:

The Group does not anticipate that the adoption of these standards and interpretations will have a material effect on its financial statements on initial adoption.

2.5 Summary of significant accounting policies

a) Revenue recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably.

Rental income

Rental revenues are accounted for on an accruals basis.

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Interest income is included in finance income in the Consolidated Statement of Total Comprehensive Income.

b) Investment property

Property held to earn rentals and/or for capital appreciation and that is not occupied by the companies in the Group, is classified as investment property. Investment property is initially measured at cost including transaction costs. Subsequent to initial recognition investment property is carried at fair value and adjustments to fair value are reflected in the Consolidated Statement of Total Comprehensive Income as part of the profit or loss for that period.

Properties held by the Group are derecognised when either they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. Any gains or losses on the retirement or disposal of a property are recognised in the Consolidated Statement of Total Comprehensive Income in the year of retirement or disposal.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

b) Investment property (cont'd)

All directly attributable transaction costs associated with the purchase of the investment properties are included within the cost of the property. Development costs and borrowing costs are also capitalised where appropriate.

c) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

d) Expenses

Expenses are accounted for on an accruals basis. Fees payable to the Property Adviser are calculated with reference to the cost or valuation of the underlying properties held by the Group.

All administration expenses are charged through the Consolidated Statement of Total Comprehensive Income.

e) Cash and cash equivalents

Cash and cash equivalents consist of cash in hand and short-term deposits which are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

f) Income tax and deferred tax

Income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income.

Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:

- Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

- In respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

- Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised in other comprehensive income. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

g) Business combinations

Business combinations from 1 January 2009

There were no business combinations during the year ended 31 December 2011 or in the 2 financial years prior to the current financial year.

Business combinations prior to 31 December 2008

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed and any equity instruments issued by the Group in exchange for control of the acquiree, plus any contingent liabilities that meet the conditions for recognition under IFRS 3 (revised) are recognised at their fair values at the acquisition date.

The non-controlling interest (formerly known as minority interest) is measured at the proportionate share of the acquiree's identifiable net assets.

Goodwill is initially measured at cost being the excess of the consideration transferred over the Group's net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the Consolidated Statement of Comprehensive Income as part of the profit or loss for the year.

.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

h) Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group entities are measured in the currency of the primary economic environment in which the entity operates (the "functional currency"). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Any gain or losses that arise on consolidation from the retranslation of the subsidiary entity from its functional currency to the presentation currency of the Group are included within the foreign currency exchange reserve.

The consolidated financial statements are presented in Euro which is the Company's functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Total Comprehensive Income as part of the profit or loss for the period.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value is determined.

Group companies

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities are translated at the closing rate at the date of the statement of financial position;

(ii) income and expenses are translated at the average exchange rate prevailing in the period and gains or losses are dealt with in the Consolidated Statement Total of Comprehensive Income as part of the profit or loss for the period.

The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal or derecognition of a foreign entity, the related cumulative translation differences recognised in equity are reclassified to profit and loss and are recognised as part of the gain or loss on disposal or derecognition.

i) Operating segments

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are reviewed regularly by the chief operating decision maker in order to allocate resources and to assess their performance. The Group lost control of SIA D Tilts Holdings ("D Tilts") and that entity's subsidiary SIA E1 Mart during July 2011. D Tilts owned the Krasta 99 property situated in Riga, Latvia. The Group disposed of its remaining 50% of Focus Kinnisvara OU ("Focus") during September 2010. Focus Kinnisvara owned the Metro Plaza property. Up until the disposal of Focus, the Group had four operating segments relating to its four projects. Following the loss of control of SIAD Tilts Holdings, the Group now has two operating segments (2010: three).

j) Financial assets

All financial assets are recognised initially at fair value. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

k) Investments in subsidiaries and associate undertakings

All investments in subsidiary companies and associate undertakings are recorded at cost less provision for any permanent diminution in value.

l) Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as accounts payable, accruals and other liabilities, loans or borrowings and are initially recorded at fair value and subsequently at amortised cost. The Group determines the classification of its financial liabilities at initial recognition.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the Consolidated Statement of Total Comprehensive Income as part of the profit or loss for the period.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the Consolidated Statement of Total Comprehensive Income as part of the profit or loss for the period.

m) Profit or loss from discontinued operations

Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

A discontinued operation is a component that is disposed of or classified as held for sale. In the Consolidated Statement of Total Comprehensive Income of the reporting period, and of the comparable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Group retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the Consolidated Statement of Total Comprehensive Income.

n) Judgements

In the preparation of the Group's consolidated financial statements, management is required to make certain judgements and estimates that affect the reported amounts of its assets and liabilities, revenues and expenses at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities. Significant areas requiring management's judgement include assessment of the fair value of investment properties and properties under construction and also the determination of deferred tax.

Deferred tax assets / liabilities

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. Further details are contained in Note 6 to the financial statements.

Revaluation of investment properties

The Group carries its investment properties at fair value, with changes in fair value being recognised in the Consolidated Statement of Total Comprehensive Income as part of the profit or loss for the period. The Group engaged independent valuation specialists with relevant experience in the location and category of investment property being valued to determine fair value as at 31 December 2011. The only exception to using a valuation specialist is with respect to the valuation applied to the Krasta 99 property which was owned by the Group's former subsidiary SIA D Tilts Holdings. With respect to this property alone, and in view of the fact that this entity was deconsolidated in the current year due to a loss of control by the Group, the Directors used publicly available data to assign a value to this property. The significant assumptions applied in determining the valuations are detailed in Note 8 to the financial statements.

Impairment of non-financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of the asset's fair value less the cost of selling the asset and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing recoverable amounts, the Company relies on independent valuers.

3. Prior year adjustment

The financial statement comparative amounts as at 31 December 2010 and 31 December 2009 have been restated as a result of an error in the calculation of the non-controlling interests' share of the loss of the Group's former Latvian subsidiary SIA D Tilts Holdings during the year ended 31 December 2008. While the net assets of the Group remain unaffected, the error has resulted in a misallocation of the accumulated losses of the Group between the shareholders of the parent and the Group's subsidiary non-controlling interest shareholders. The impact on the statement of financial position at 31 December 2010 and 31 December 2009 is as follows:

Earnings per Share (basic and diluted) attributable to the shareholders of the parent as previously reported in the financial statements for the year ended 31 December 2008 was 95.91c (loss per share). The impact of the above error is that earnings per share should have been reported at 93.97c (loss per share).

4. Administrative Expenses

Administrative expenses include the following; 31 December 31 December

2011 2010

Group Group

€'000 €'000

Investment management fees 171 404

Interest on management fees - 70

Legal and other professional fees 706 134

Administrators fees 130 72

Directors' remuneration 36 31

Auditors' remuneration - audit services 40 40

Impairment of VAT receivable balance - 188

Accountancy Services 63 77

Other administrative expenses 259 144

_______ _______

1,405 1,160

Reclassified to discontinued operations (note 9) - (71)

_______ _______

1,405 1,089

====== ======

Management fees were accrued at 1.5% per annum of gross assets under management in Russia and 1% per annum of all other gross assets until 7 August 2011. The management fees were calculated and charged quarterly based on the gross assets of the Group at the end of the quarter. Performance fees are calculated based on the audited net asset value at 31 December each year and are payable annually. The performance fee is calculated as 25% of the increase in the net asset value of the Group in excess of a hurdle rate of 12% over the period. As the net asset value at 31 December 2011 is below the hurdle rate no performance fee is payable in respect of 2011. It should be noted that the above fees are accrued based on the investment management contract of the former investment manager and investment adviser. It is likely that litigation will be pursued against both parties by the Group and it is the view of the Directors that no management fees will be paid to the former investment manager or investment adviser.

5. Finance Income and Expense

31 December 31 December

2011 2010

Group Group

€'000 €'000

Interest receivable on deposits - 79

______ ______

Finance Income - 79

===== =====

31 December 31 December

2011 2010

Group Group

€'000 €'000

Interest payable on bank and other loans 548 1,072

______ ______

Finance Expense 548 1,072

Reclassified to discontinued operations (note 9) - (207)

_______ _______

548 865

====== ======

6. Income Tax

31 December 31 December

2011 2010

Group Group

€'000 €'000

Other tax

Levy on unpaid up share capital and rental income - (59)

Deferred tax

Released to comprehensive income 1,078 303

______ ______

Tax credit for the year 1,078 244

===== =====

Deferred tax principally relates to capital gains tax or equivalent that would be payable on the disposal of investment or other property assets at their current fair market value based on their carrying tax value.

The Company is resident in the Isle of Man. Its activities in the Isle of Man are liable to tax at a 0% tax rate.

Tax payable at 31 December 2010 relates to taxes payable for a Special Defence Contribution levy charged in Cyprus on certain activities.

The Group has income tax losses of €3.8m (2010: €3.4m). The deferred tax asset associated with these losses is €558k (2010: €506k) of which €506k (2010: €506k) has not been recognised in the accounts as there is insufficient evidence that the Group will earn taxable profits sufficient to utilise them.

The deferred tax liability has arisen based on the tax that would be payable by the Group if property assets held by it were sold at the current valuation based on the current tax rates in the appropriate jurisdiction and the current tax carrying value.

7. Earnings per share

The calculation of basic earnings per share at 31 December 2011 was based on the loss attributable to shareholders of €7,090k (2010: €562k) split between a loss from continuing operations of €6,897k (2010: loss of €1,049k) and loss from discontinued operations of €193k (2010: profit of €487k). The weighted average number of ordinary shares in issue during the year ended 31 December 2011 of 26,200,270 (2010: 26,200,270).

Diluted earnings per share amounts are calculated by dividing the net profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares into ordinary shares.

31 December 31 December

2011 2010

Group Group

€'000 €'000

Basic and diluted earnings per share

Loss attributable to

equity holders of the parent - continuing operations (6,897) (1,049)

_______ _______

(Loss) / profit attributable to

equity holders of the parent - discontinued operations (193) 487

_______ _______

31 December 31 December

2011 2010

Group Group

Weighted average number of ordinary shares 26,200,270 26,200,270

in issue during the year

8. Investment Property

Investment properties are stated at fair value. The Group has appointed independent and internationally recognised valuers with significant experience in the region to prepare valuations for the St. Petersburg and Estonian properties as at 31 December 2011.

The valuation of the Krasta property (derecognised following the loss of control) was performed by the Directors. External valuations are undertaken in accordance with International Valuation Standards published by the International Valuations Standards Committee.

The valuation method inter alia considers profit, cost, and market approaches as appropriate. The valuations consider the value of the property based on the expected sale value at completion less any expenditure required to realise this value. The valuations consider the expected rental yields for similar properties. The valuation method also considers comparative deals, to the extent that any relevant transactions have occurred, in the market at the time of the valuation.

The valuation methods and key assumptions used by project are outlined below.

Krasta 99a

The Directors' valuation estimate was prepared using the property index of the Latvian state. The state index showed an overall appreciation from December 2010 to 6 July 2011 (date of loss of control) of 4%. The Directors are of the opinion that this is an approximate measure of the change in property value and have used this measure in arriving at their valuation.

Pirita tee

The external valuation estimate was prepared using the income and the sale comparison method. The method of valuation considered the current tenancy schedule and recent sales of comparable property going back over six months. Consideration was also given to location, which has been recognised as a location for somewhat luxury apartments in the upper price segment, scale of sea view, the clear development concept and the approved detail planning.

10A Bolshaya Pushkarskaya Street

The external valuation estimate was prepared using the Income Approach method. This considered both existing and future discounted rental income, using a rate of 12.7%. Development and construction costs have also been considered commencing during 2012 end and envisioned to complete in four years.

Given the significance of the value of the property at 10A Bolshaya Pushkarskaya Street in terms of the current year balance sheet and the future plans of the Directors, sensitivity analysis was completed on the valuation assuming the following:

9. Loss / (gain) on derecognition of subsidiary entity, assets classified as held for sale and discontinued operations

The loss (profit) for the year from discontinued operations arises as follows;

In July 2011 the Group lost control of its 80% holding in SIA D Tilts Holdings (and its subsidiary SIA E1 Mart), the entity that owned the "Krasta 99" property in Riga, Latvia, realising a loss on derecognition (as calculated in accordance with IAS 27 - Consolidated and Separate Financial Statements) of €536,000. The Group ceased to consolidate the results, assets and liabilities from the date of the loss of control. Amounts previously included in respect of non-controlling interests (€1,397,000) and cumulative translation adjustments (€156,000) have been derecognised as of that date. The gain on derecognition was calculated as follows:

The results of the operations of this operating segment have been included in the Consolidated Statement of Total Comprehensive Income within the single line item "(Loss) / profit for year from discontinued operations". The detailed analysis of the segments results are included below. The comparative financial statement amounts have been adjusted to reflect the fact that the segment is now discontinued.

The carrying amounts of assets and liabilities derecognised upon the loss of control is summarised below as are the details of the amounts consolidated in previous years.

In October 2010 the Group sold 30.7% of its 80.7% holding in Focus Kinnisvara OU, the entity that owned the "Metro Plaza" property in Tallinn, Estonia, realising a gain on disposal (as calculated in accordance with IAS 27 - Consolidated and Separate Financial Statements) of €255,000. Arising from this, the Company ceased to hold a controlling interest in this entity and accordingly ceased to consolidate the results, assets and liabilities from the date of the loss of control. Any amounts previously included in respect of non-controlling interests (€1,218,000) and the foreign currency translation reserve (€178,000) was eliminated. The gain on disposal was calculated as follows:

Following the sale of the 30.7% shareholding, the remaining 50% was immediately made available for sale. The sale of the remaining 50% was completed during the current financial year. In accordance with IFRS 5 - "Non-current Assets Held for Sale and Discontinued Operations", the associate interest was reclassified from non-current financial fixed assets to "Assets included in disposal group as held for sale". The investment in the associate undertaking was measured in accordance with IFRS 5 with the affect that the value of the asset was adjusted to its net realisable value less costs to sell. The loss arising as a result of this fair value adjustment is disclosed below.

The results of the operations of this operating segment have been included on the statement of total comprehensive income within the single line item "Profit / (loss) for year from discontinued operations". The detailed analysis of the segments results are included below.

The carrying amounts of assets and liabilities held for sale is summarised below as are the details of the amounts previously consolidated.

*The value of the investment property increased by €832,000 in the period between 1 January 2010 and 30 September 2010 resulting in a fair value at the date of loss of control of €18,732,000 (see Note 8).

10. Operating Segment Information

For management purposes, the Group is organised into business units based on their activities and at year end had two reportable operating segments as follows:

- Pirita Road, Tallinn, Estonia

- Bolshaya Pushkarskaya, St Petersburg, Russia